The Intrinsic Value Podcast - The Investor’s Podcast Network
MI374: Fortune’s Formula: The Scientific Betting System For Beating Wall Street w/ Shawn O’Malley
Oct 21, 2024
Dive into the compelling world of the Kelly Formula, a method rooted in information theory that helps investors maximize their wealth. Learn how Ed Thorpe outsmarted casinos and markets alike by leveraging this formula. The discussion highlights defining your edge in investing and the controversial aspects surrounding the Kelly Formula. Explore the intriguing parallels between betting and investment strategies, revealing insights on risk management and conviction in your decisions. Discover what makes this approach both innovative and misunderstood!
58:07
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Quick takeaways
- The Kelly Formula, created by pioneers at Bell Labs, allows investors to determine optimal bet sizes based on their perceived edge.
- Ed Thorpe exemplifies successful application of the Kelly Formula, transforming betting strategies in blackjack and the financial markets alike.
Deep dives
Investing as a Calculated Bet
Investing shares similarities with gambling, as both involve navigating uncertainty and the potential for financial returns. Each investment can be viewed as a bet on various factors, such as company management, market competition, or product success. Understanding the nature of these bets is crucial for investors, as even seemingly safe investments are based on underlying assumptions about future performance. This perspective encourages a disciplined approach to investment decisions, emphasizing the importance of assessing risks with a scientific mindset.
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